Ladies and gentlemen, thank you for standing by. Welcome to the IRADIMED CORPORATION Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And as a reminder, this conference call is being recorded today, July 28, 2017, and contains time-sensitive information that is accurate only as of today. Earlier today, IRADIMED released financial results for the second quarter 2017. A copy of this press release announcing the Company's earnings is available under the heading, News, on their Web-site at iradimed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8-K. A copy of this Form 8-K can be found at sec.gov. This call is being broadcast live over the Internet on the Company's Web-site at iradimed.com and a replay of the call will be available on the Web-site for the next 90 days. The agenda for today's call will be as follows. Roger Susi, President and Chief Executive Officer of IRADIMED, will present opening comments. Then Brent Johnson, IRADIMED's Executive Vice President of Worldwide Sales and Marketing, will discuss customer orders. And finally, Chris Scott, IRADIMED's Chief Financial Officer, will summarize the Company's financial results, before opening the call up to questions. Some of the information to be furnished in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on the future performance, results, plans, and events, and include the Company's expected results for 2017. IRADIMED reminds you that future results may differ materially from these forward-looking statements due to a number of risk factors. For a description of the relevant risk and uncertainties that may affect the Company's business, please see the Risk Factors section of the Company's most recent reports filed with the Securities and Exchange Commission, which may be obtained for free from the SEC's Web-site at sec.gov. I would now like to turn the conference over to Mr. Roger Susi, President and Chief Executive Officer of IRADIMED CORPORATION. Mr. Susi?

Thank you, operator, and good morning everyone. Earlier today we reported second quarter revenue of $5.5 million, with GAAP net income of $0.03 per diluted share and non-GAAP net income of $0.06 per diluted share. Of course I'm pleased with these results considering current quarter revenue was up 7% over the first quarter of 2017 and we exceeded our GAAP and non-GAAP earnings estimates as well, though comparison to our 2016 Q2 is against our highest ever quarter. Additionally, IV pump bookings for the quarter were strong, plus international interest in our patient monitor is growing at an exciting pace. We still are somewhat early in our new sales process. However, these results are positive and give us confidence in our methods and products, though we remain vigilant and ready to make adjustments to our selling strategies and our cost structures if needed. Clearly at this time, we look to continue growing momentum into the second half of the year. In a few moments, Brent will provide you with an update on bookings and Chris will review the quarter's financial results, but first I'd like at the time now to give you an update on our regulatory status of the patient vital signs monitor. As many of you may recall, during our last quarterly update, we announced that we have withdrawn the monitor's 510(k) application after confirming with counsel and our FDA lead reviewer. This allowed more time to understand and respond to additional documentation and testing concerns around certain aspects of our device that FDA was concerned with, specifically additional documentation and testing around ECG effects in the MR and additional human factors testing that is supplementary to the human factors testing we had already performed. I also stated during our last update with you that we were in…

Thanks Roger. Second quarter bookings came in above our estimates, with June actually being our strongest monthly performance in the past two years. This growth was driven by an increase in the overall volumes of pump systems in the quarter and the continued increase in average selling prices in the U.S. market due to customers purchasing more higher-priced accessories and options than in the past. This has been a continuation of the positive results that we saw in our first quarter and we look to build upon this momentum going forward. In reviewing the composition of pump orders for the quarter, we had a very similar mix as the first quarter, with approximately half of our orders coming from first-time adopting customers and half our orders coming from current installed base of customers, and we view this as a very healthy mix. Consistent with my comments during the last quarterly conference call, orders from our former competitor's customers remained negligible and we expect a similar composition of orders for the foreseeable future. Our strategy of targeting the critical care departments along with our core market in the MRI department is beginning to pay off, with increased orders for our pumps. We are experiencing higher rates of success with our critical care strategy by stimulating the demand for those pumps in those departments and changing their practice of either using conventional pumps with long IV lines extending to the MRI room or waiting until patients are stable enough to go to MRI without IV medication. Even when we do not sell directly to the critical care department, the demand from critical care and their desire for changing current practice is putting pressure on the MRI department to order our MRI compatible pumps to handle the request for patient care. In many…

Today I'll be discussing our financial results on a GAAP basis as well as on a non-GAAP basis. Our non-GAAP operating results excludes stock-based compensation expense and the related tax effects. Our free cash flow measure is cash flow from operations, less cash used for purchases of property and equipment. We believe the presentation of these non-GAAP measures along with our GAAP financial statements can be helpful in providing a more thorough analysis of our ongoing financial performance. You can find a reconciliation of these non-GAAP measures to the nearest GAAP measure on the last page of today's press release. As Roger stated, we reported second quarter revenue of $5.5 million compared to $9.9 million for the second quarter last year. Revenue from domestic sales was $4.8 million or 88% of total revenue for the current quarter compared to $9 million or 91% of total revenue for the second quarter 2016. Revenue from international sales was $0.7 million or 12% of total revenue for the current quarter compared to $0.9 million or 9% of total revenue for the same quarter in 2016. International revenue for the second quarter of 2017 included approximately $400,000 in sales of our MRI compatible patient vital signs monitoring systems. Revenue from devices was $3.7 million or 67% of total revenue for the current quarter compared to $8.2 million or 83% of total revenue for the same quarter last year. Again, $400,000 of devices came from sales of our MR patient monitoring systems. Revenue from IV sets and services was $1.8 million or 33% of total revenue for the current quarter compared to $1.7 million or 17% of total revenue for the 2016 quarter. As of June 30, 2017, backlog was approximately $2.7 million and within our expected range for the full year 2017. We recognized…

[Operator Instructions] Our first question comes from the line of Chris Lewis of ROTH Capital Partners. Your line is open.

I wanted to start on just the booking trends for the pump in the quarter. On the last call, you talked about bookings accelerating in March, and it sounds like based on your prepared remarks today, you saw that continue through this quarter. I appreciate the prepared remarks from Brent, but perhaps you can elaborate on just what you feel is having the most impact for those improvements you are experiencing, any additional color on that would be helpful?

Sure, Chris. It really comes down to the strategy that we are employing, and as Roger alluded to, we've been training the sales people and it's been a process. Before we were really concentrating most of our efforts on MRI and concentrating most of our efforts with anesthesia, but this focusing on critical care really is driving the demand quotient for the pump. These are the people with the critical patients that they are taking care of and these are the people that are responsible for that care. And as I said in my remarks, I mean it really helps to prioritize those purchases in MRI. They like our product. Again, they see – I've never been involved in a demonstration where they've looked at it and they've gone, 'no, the way we're doing it is better'. They pretty much almost always agree that it's a great idea to use an MRI IV pump. But these departments have many, many priorities and that's just one of them. So, the more that we can work with critical care, the more that we can develop the grassroots interest in our product and demand for our product for those patients, and actually change the way they are practicing, and that's what we're talking about here, is really changing their way of practicing, and once we get that ingrained into those customers that are really responsible for taking care of those patients, that's where we're having our greatest success. So, this has been a process, though educating the salespeople, bringing on a lot of new salespeople as we did over the past year or 18 months and getting them not only trained up in the process of representing our products but also in this critical care strategy, has taken some time as well, and I think it's a combination of everything coming together. We are coming together with more seasoned salespeople working for us. Many of these quotes that we've put out over the past couple of years are now coming to fruition and have been able to make it through some budgetary processes. And so overall, I mean there's a lot of factors that are leading into it, but really pleased with the positive results we are seeing.

All right, that's really helpful. How big is the sales force today and did you experience any rep turnover during the quarter?

We actually did. We have 18 salespeople, I remember, and two area directors that direct the day to day activities of those people. We did have two turnovers in the past quarter. One of them was expected, as is healthy and happens with any sales organization, and one of them caught us a little bit by surprise. So we did have two turnovers, we're in the process to replace them and have identified candidates, have not made final hiring decisions yet but are very close.

Okay. So if we back out the backlog and the monitor sales this year, guidance implies around that 3% to 5% underlying pump growth rate that you talked about. As we look into next year, understandably you're not going to give guidance today, but do you see that 3% to 5% as kind of a normalized and reasonable baseline for kind of pump growth going forward?

I see that as something that we should be able to achieve, yes.

Okay, that's great.

This is really, as we've mentioned here in the comments, this is really the start of the process, and we think as we get deeper in the process, we are going to be able to achieve some higher growth rates. That's kind of why we laid the process out like this and we knew that there was going to be a ramp to it. So if we think about next year, I think we will be pretty disappointed with 3% to 5% growth or 5% to 7% growth that we referred to on the pump business. I think we would be more – we would really like to see something closer to 12%, 15%, something along those lines. Obviously we got to do the detail work around that, there's a couple of more periods to play out and this education to really take hold, and this traction and momentum to continue to build, but I think we would overall be pretty disappointed with 3% to 5% and are really shooting for something 3x to 4x higher than that.

Okay, that's helpful. And then in terms of the monitor, the anticipated launch in the fourth quarter, perhaps you can kind of just help us understand what you are doing ahead of that in terms of getting the reps up to speed on that product in anticipation of beginning to sell it in the fourth quarter?

Sure, Chris. We have had some training on the product already at some prior meetings and we have really begun – we've been talking to customers about the product for quite some time now. So we have a good base of customers that are anticipating the release of the product and customers that frankly in many cases are waiting for the release of the product because they want to see it, they want to try it, and think they want to buy it at this point. We also have been basically correlating, trying to find all the customers out there that are making Q4 decisions. So this is part of the daily discussions that the guys are having when they go to see the MRI department, is they are talking about the pump, they are identifying those customers that are making Q4 decisions, that's what we're really prioritizing at this point. We have many interested customers but we're really trying to focus in on the ones that are making Q4 decisions, so that we can target them as soon as we have that 510(k) and as soon as we can get equipment out into their hands and be demonstrating it, show them the product. We do plan to have a full training for our salespeople the first week of October, as long as everything goes as planned and we do get the 510(k) or anticipate the 510(k) by the end of Q3.

Okay. And just one more for me and I'll hop back in queue. You talked about I think a $15 million kind of annualized run rate within 24 months for the monitor product. Kind of given what you have seen internationally so far, albeit still early, it seems like that traction is progressing nicely. How should we think about the rate of adoption for the monitor in the U.S., just given the dynamics around the sales cycles and competition and rep training and so forth?

I mean it's a little bit of a different dynamic there, Chris, because unlike the pump market, it's not a market that we are creating, right. All those pump sales are markets that we create out there. I mean a lot of those pump sales are sales that we are creating out there in the market. This is a market that already exists. It's a mature market. It's a market that, again, is going to buy X amount of patient monitors each quarter and that becomes an exercise of, A, identifying the business, and B, competing and winning that business against a tranche competitor. So, as you can imagine, it will be a process where our people come up to speed on selling that technology and competing in that kind of a marketplace with a large and tranche competitor, but that's pretty much how we see it progressing. So it will be different than the pump sales, but that market is already there, we are going to be competing on these deals from day one. So, I believe that we're going to aggressively attack that market and take market share.

Okay, thanks guys. Congrats on the progress.

Our next question comes from the line of Larry Solow of CJS Securities. Your line is open.

Just sticking with the monitor related questions first, are there any plans for sales force expansion or are you going to sort of go with what you have today initially and then play it by year?

Probably I could answer that. Once we launch the monitor, we plan to continue to expand our sales team. With the addition of the monitor, you can imagine it's a whole new product area that has a larger current market each year. So, there's a lot of opportunity there, we're going to need more feet on the street to address it.

Okay. And how about just outside the monitor, it looks like the sales force has been, I know you said you had a couple of turnovers this quarter, I think you started the year at 16 or 17, right, so you've I guess trickled up a little bit and I guess that's still sort of the plan to trickle up and then maybe that advances a little bit with the monitor?

Yes, I mean we started the year with 18 sales territories, we've still got 18 sales territories. We made a decision to hold at the 18 until we release the monitor. But like I said, when we release the monitor, we're going to need more people, so a lot more market.

And could you characterize, I think you've said [indiscernible] give an exact date, I think early July, I'm not sure if there was a day given, but just your discussions to date I guess with the FDA, I know they [indiscernible] some additional study data, but it looked pretty benign. I guess you seem pretty confident that you will get approval within I guess that 90 day period. Any color on that that you could add and what gives you that confidence?

Sure, Larry. It's Roger. I think you can probably tell by the tone of my voice we are pretty confident.

Absolutely.

Yes, we are pretty confident it's going to happen a lot less than 90 days actually. And maybe I'll give a little more color to something I might have passed over a bit lightly, which is, this team that does monitor approval, they have looked at this twice now already. The first go around, when they looked at the original application that we filed about a little over a year ago, they looked at that and came back with 41 rather detailed questions and concerns in about 40 something days. My mind is, I don't remember, it's 42, 43, something like this days, than 90. And we responded to that large number of questions. That response was a couple of legal box sized boxes full of paper, so huge response. They responded to that in under 30 days. So, they've been performing rather quickly and we expect that they'll again respond to this pre-application, since it's pretty targeted now what they are looking at, there were about 16 open concerns, most of – the vast majority of which were very simple that led us to withdrawing and starting over again. The main reason was I think given out to human factors, and that was time consuming. So, for them to go over what we've now returned to them, we really expect that that will be again less than 30 days. And so, we should know early part of August, certainly by the middle of August, where we stand with this latest 510(k) and anticipate that there wouldn't be any particularly difficult or time-consuming questions resulting from that. That's why we are very bullish that we'll have this thing figured by regular launch 1st of October.

Okay. A couple of more, just I know you didn't give an actual bookings number or a book-to-bill or anything like that, but just trying to get an approximate number, because I see that essentially your sales were up a little bit sequentially, but if I take out the monitor, they were sort of flat, maybe even down a little bit excluding the monitor, and then going out into Q3, I realize that's a little bit of a weaker quarter, but it looks like sales are expected to drop again. Again, I know it's a small number but a little bit down. So I'm just trying to connect the dots to what the bookings were or how favorable they were?

So I mean we don't really talk about what the bookings are, other than Brent's comments that they were strong this quarter and we felt like there was a lot of flow-through or the momentum that we began to see in the first quarter. That's sort of a continuation there. Third quarter is typically our lowest booking quarter of the period. So, there was really no reason to get aggressive or anything when we're walking into the third quarter. But you see some flat to slightly up guidance for Q3. We are highly confident in that guidance based on what we have seen and based on what we're carrying into the quarter. And I think it's big of your commentary about flat revenue. Once you are backing out the monitor, flat to down. It was truly flat. I mean the monitor sales in the third and fourth quarter or I mean in the first and second quarter were within $10,000 of each other. So, it really is an apples-to-apples comparison. So there was some slight growth in the pump business.

Got it, okay, fair enough. And then just last question, just Chris, on the gross margin, had a little bit of a sequential bump up. Anything to read into that and what's the outlook on the back half of the year?

Nothing to read into it. There wasn't anything unusual. We had a drop-off in first quarter gross margin just due to some production. We had carried more finished goods into the first quarter than we thought and we didn't produce as much as we had planned in the first quarter. So we ended up with some variances there that really put a drag on margins. The second quarter, we kind of caught all that up and produced a lot more, able to absorb a lot of those overhead costs. Going forward, we think we are straightened out now and I wouldn't expect too much movement. Of course there's going to be some movement in margin, but I wouldn't expect some significant movements, like what we saw between Q1 to Q2.

Okay, great. Thanks. I appreciate it.

Our next question comes from the line of Larry Haimovitch of HMTC. Your line is open.

I just have one question. A lot of the other questions that I had lined up were asked by the previous questioners. Capacity for the new monitor, assuming you get approval in a timely way and assuming demand is better than you thought, do you have the ability to deliver more than the number you suggested on the call?

Absolutely.

We have capacity to deliver many more than even in our wildest dreams might get in the first several quarters of business.

Okay. So your sales forecast or your sales guidance, if you will, for the year is based on the selling cycle, not the ability to deliver product?

That's right.

Right. So if it starts to take off, you'll have the ability to deliver?

Yes.

And so, how much can you see the margin in advance, because obviously you don't have the approval yet, hopefully you will have it within several weeks coming up here, are you talking to customers at this point about it and is it possible that customers will respond quicker than you thought and maybe will pleasantly surprise you?

Yes, as I was talking about on the previous question, we have been promoting the product. Again, you have to be careful how you say that. We have not been pricing the product, we have not been giving any kind of a delivery date for the product, because we're not allowed to do that without 510(k). But we have been growing, we have been talking to customers about the product, and they are excited to see the product when we have it available to them. And I guess what we're really trying to do is identify business that's happening in Q4, right. There's a number of deals that are going to go down in Q4, that are budgeted patient monitoring deals that are going to happen, that happened quarter after quarter after quarter. So, we are concentrating our efforts on finding those deals, and again, being ready to get in there and promote the product with those customers. It assumes we are able to do it.

And this fourth quarter business that you see available, I'm assuming this is 99% or 100% replacement business that there isn't any new installations going on at this point around the country?

There is new installations from the standpoint that the magnet base in the U.S. is still growing I believe at a very slow rate of 5% to 7% a year. So there are more and more magnets that are being installed. I mean I'm talking about the U.S. market here. Worldwide [indiscernible] expansion, but just to focus on the U.S. market here, there is a small number of – a small growth in that market, and of course that growth represents new patient monitoring opportunities too. So, there is some growth there.

And what's the relevant market opportunity? I know you've described it in the past. What do you think is the installed base in today's U.S. market?

For monitors?

Yes.

Annually, I would put that number at – I mean I was just looking at an annual number. As far as the installed base…

Either or both, so [an annual] [ph] is perfectly fine.

Yes, looking at it from more of an annualized basis, somewhere in the range of 70 million to 100 million.

So let me understand that answer. If you captured 100% of the available market share at some point, 2018, 2019, 2020, that the monitor sales would be 70 million to 100 million, or did I misunderstand what you are saying?

Yes, that's the total available market.

That's the total available annual market.

In the U.S., probably more less, you're thinking about probably more like 60 million to 80 million.

How much did you say? 60?

60 million to 80 million.

60 million to 80 million. So with this superior product and with available capacity, it is conceivable that you could in a year to have a very, very robust monitoring business. Am I thinking correctly here?

You are thinking correctly.

You are thinking correctly. In the prepared remarks…

Because I've seen the competitive product, I've seen your product, and you talked about night and day, it's more than night and day. I mean it's just a dramatic difference in the quality of the product. It's a clunker versus a Tesla, right, or something like that. So, it would seem that you have a very good opportunity to really pick up some significant business as we – once we get the FDA approval and once you really get your selling team totally aligned?

We would agree with that. That's why we're excited here.

Good. I'm excited now too. Thank you.

Thank you, and we have a follow-up question from the line of Chris Lewis from ROTH Capital Partners. Your line is open.

Just one follow-up for me, what type of impact should we expect to see on gross margins upon the ramp up of the manufacturing for the monitor, and then as we look into 2018, what impact do you think that will have on corporate gross margins over time?

I mean overall, gross margins will have a favorable impact. We'll be pumping out more units with really very little change in our cost structure. So, we would expect to have a highly favorable impact to gross margins. Once we get to that 150 to 200 units a year type of a run rate, we could see gross margins maybe a few percentage points north of what we experienced last year at certain quarters.

Okay, thank you.

Thank you, and at this time I'm showing no further questions. I'd like to turn the conference back over to Mr. Roger Susi for closing remarks.

Thank you, and thank you all for participating in today's call. We're encouraged by the business trends that we are seeing for IV pumps, and highly positive feedback and interest in our patient monitor from all these international customers that we've been cultivating now for better than six months. We look forward to a timely clearance from the FDA for the monitor and are now preparing for and anticipating a successful fourth quarter launch. We are excited about the potential that this new product can bring and we look forward to updating you on our expected exciting progress soon. Thank you.

Thank you. This concludes today's call. You may now disconnect. Everybody have a great day.